A state fund intended to create 390 Michigan jobs has loaned $7.7 million to 35 companies and created 79 jobs — only 20 percent of the number initially promised.

Ann Arbor SPARK received an $8 million grant in 2006 to create the Michigan Pre-Seed Capital Fund, which used $7.7 million of that amount. The grant was awarded as part of the Competitive Edge Technology Grants and Loans program, which exists "to encourage the development of competitive edge technologies to create jobs in the state."

Skip Simms, manager of the Michigan Pre-Seed Capital Fund, said in an email, "We saw a need for early stage capital for start-up technology based companies, which the private sector wasn’t providing at the time."

According to Simms, the fund "allows companies to really ramp up the commercialization of their business."

Funding for the Michigan Pre-Seed Capital Fund came from the 21st Century Jobs Trust Fund, which is administered by the Michigan Economic Development Corp. As of September 30, 2011, more than $30 million remained in the Trust Fund. The pre-seed account is one of several public venture capital-type programs administered by the 21st Century Jobs fund.

StayEngaged

Receive our weekly emails!

email address

The fund was touted by Gov. Jennifer Granholm for its goal of diversifying Michigan’s economy.

"Through the fund, we are laying the foundation for a new Michigan economy by developing a multi-dimensional entrepreneurial ecosystem that provides start-up businesses with seed capital, coaching and the support infrastructure needed to develop businesses in Michigan," said the former governor.

A 2005 study by the Mackinac Center found that this message is a common refrain among Michigan governors. In 1975, Gov. Bill Milliken created the Michigan Job Development Authority in part to "diversify the Michigan economy." A report from the House Fiscal Agency found that diversification of the Michigan economy was a goal of the Michigan Strategic Fund that Gov. Jim Blanchard created in 1984.

"Every governor back to Kim Sigler in the 1940s has promised to diversify Michigan’s economy with some department or program,” said Michael LaFaive, director of the Morey Fiscal Policy Initiative at the Mackinac Center for Public Policy. "At a minimum, the anecdotal evidence has shown that they have failed. In the past decade, we became more diversified not because of central planners but because of our almost catastrophic decline in manufacturing jobs as a result of bad public policies."

In addition to claims that the fund would diversify the Michigan economy, Gov. Granholm predicted that the 21st Century Jobs Fund would boost job creation in Michigan. While 390 jobs were projected to be created by the 2006 grant that formed the Michigan Pre-Seed Capital Fund, Simms reports that companies receiving loans from the fund have created only 79 jobs.

A second Michigan Pre-Seed Capital Fund was created by a $6.8 million grant in 2008. The second fund invested loans and equity in over 45 companies.

A third Michigan Pre-Seed Capital Fund was created by a $9.1 million grant in 2010. All Michigan Pre-Seed Capital Fund grants came from the 21st Century Jobs Trust Fund.

Michigan has an overlapping, often confusing system of government funding and supporting a variety of industries in the state. Michigan Capitol Confidential will be taking a look back at how these select companies have performed in relation to their initial promises.

Obamacare repeal-and-replace is underway, and regardless of whether it passes or fails big, changes are coming for Michigan’s medical services and insurance industry, and the state’s social welfare system, especially Medicaid.

RelatedSites

Would you like to see more information like this? Learn how you can help the Mackinac Center provide incisive, accurate and timely analysis of critical policy issues.